What Is A Stock Anyway?

Stock is essentially a small part of any company. Firms sell stock to raise capital for further investment or to get a company started. Without this method of raising capital, many companies would not be able to experience a high level of success or even get started. The number of shares of stock can vary based on the type of company and how much capital is needed to achieve the desired financial goals.

“Plain and simple, stock is a share in the ownership of a company. Stock represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. Whether you say shares, equity, or stock, it all means the same thing.” -investopedia.com

Power

The more stock or “shares” you hold in a company, the more you own of it and the greater your influence. A shareholder that owns more than 50% of the stock of a company is often referred to as the controlling interest. This means that major decisions can often not be made without the approval of this party. The controlling interest may not be an individual either. Often a controlling interest is held by a holding company, investment group, or larger corporation. Budweiser may be the most popular beer in American, but in reality, it is owned by a much larger group known as InBev. This means investors in Inbev hold stock in Budweiser and all the other brands owned by them.

stock market trading floor

stock market trading floorStock Certificates

Proof of ownership of stock used to be represented by a paper certificate but in today’s modern age these certificates are kept electronically. In fact, most investors never see an actual physical stock certificate. This is good in some ways because paper can be lost or destroyed. Even if there is a paper certificate, there is always an electronic backup of this document kept on file at your stock brokerage and financial planner’s office.

Limited Liability

One reason investing in companies via shares of stock is so popular is that investors can get the benefits of returns without having to take on any of the financial responsibility or criminal liability that a company often has to do. This means that an investor can only lose the initial amount invested and no more. This risk makes it easier for investors to justify taking the leap of faith and investing in a new and upcoming company.

Liquidation

If a company you own stock in decides that the company is not viable and moves to liquidate, then you will receive a share of the proceeds according to how much stock you own, after all, debts owed by the company have been paid.

Liquidation is usually a last resort for a company to make. A lot of investors sell out before this happens, this is one reason it is important to stay on top of financial news and events. If you are invested in a stock, and it starts losing, then you may want to consider selling so that you can maintain your maximum number of assets.

Raising Capital

There are many reasons why a company may decide to increase the amount of shares of stock available to investors. If a company is doing well and wants to expand to another location or market, they may need some capital to finance this and grow the company and increase profits in the long term future.

Start up companies can offer the best returns in some cases because they have the largest potential for steep rises in value but the highest risk. A lot of great ideas get popular due to investors taking a chance on an up and coming entrepreneur. This is one of the only ways for some companies to gain the capital they need to get started and grow as needed.

First Sale Of Stock

A company that offers stock for sale for the first time is referred to as an initial public offering. This is often when stock prices are lowest and savvy investors can get in on a solid investment with less money. The risk for these stocks is often seen as very high, so the prices have to be low enough to accommodate this level of risk and entice others to have confidence in a company.

stock exchange

Gaining Power

Over time some stockholders may gain more power if the company they are initially invested in gains more assets within a firm. For example, if you are invested in company X and they acquire more shares in company Y then you may gain more privileges. This is totally dependent on the firm you are invested in. If there is ever any doubt as to what rights you have as an investor, then you should contact your brokerage firm or other party and get the details so you can make smart financial decisions in the future.

The controlling interest in a company can change over time. It is important to keep up with who or what corporation has the controlling interest in any firm you are invested in. The values and practices of those firms you are invested in can reflect back on you in either positive or negative way. An example may be if you are an organic grain producer with a company stock portfolio that has a choice of investing in NonGMO or GMO corn for example. You would naturally go with the more natural option, so your reputation and public perception are seen as stable.

The Importance Of A Portfolio

Creating a portfolio of stock is important because it can help you achieve your long-term financial goals and provide for your family, so they have a comfortable lifestyle. Stocks are often part of a smart long-term plan regardless of who you are. There are stocks that can help provide a small income over the years as well as those that may show greater returns.

In short stocks are a way to make your money work for you and accrue greater value over the years. A financial planner will likely also incorporate some other aspects to your long term plans such as life, long-term care, and other insurances that will preserve your capital in the case of any medical or other life changing event. After working so hard over the years, you and your family deserve to get the full reward of your dedication and labor.

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